Yahoo Drops 5% After Alibaba’s Updated F-1 Filing Indicates Slipping Margins

Yahoo’s stock, behaving as a proxy to Alibaba’s valuation, is down 5 percent today in midday regular trading, after the Alibaba’s updated F-1 filing indicated that its operating margins are declining.

According to the company, for its most recently ended fiscal quarter, its operating margin “declined from 51.3% to 45.3%,” when compared to the comparable year-prior quarter. If Alibaba’s margins are shrinking, its future profits could be reduced, making the company less valuable, and thus Yahoo worth less, given that it owns a large piece of the e-commerce giant.

Yahoo’s stake in Alibaba, some 22.5 percent, is incredibly valuable. Alibaba’s estimated valuation topped the $150 billion mark earlier this year. Yahoo’s percentage of that equity would be worth more than $30 billion.

Alibaba, as Reuters noted, is also seeing sequential-quarter revenue growth deceleration:

Alibaba reported its net income in the quarter ended March 31 climbed 32 percent to 5.543 billion yuan. Revenue was up 38 percent to 12.031 billion yuan. The pace of revenue growth was down from 62 percent in the previous quarter.

Alibaba itself highlighted this:

[OI]ur revenue grew 72.4% from fiscal year 2012 to fiscal year 2013, 52.1% from fiscal year 2013 to fiscal year 2014 and 38.7% from the three months ended March 31, 2013 to the same period in 2014.

Given the vast scale of Alibaba’s revenue — more than $8 billion in its most recent fiscal year — the percentage growth of its top line will decrease in time. It’s up to investors to parse its first-quarter results and decide what growth expectations are reasonable.

Yahoo and Alibaba did not respond to requests for comment.

Update: Yahoo declined to comment. Update 2: Alibaba also declined to comment.